Word: stocke
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Dates: during 1990-1999
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...Valuations matter. There are companies behind those pieces of paper we call stocks. If a company's fortunes sink, so eventually will its stock. Beware of any company whose price-earnings multiple is greater than the expected annual growth rate for its earnings over the next few years. For example, Coca-Cola's P/E, even now, is 40; its earnings could rise 15% a year. That's definitely not the real thing...
...want to stay in the game but are looking for a relatively safe harbor, consider Real Estate Investment Trusts, whose 6% yields offer unusual protection. Or buy other high-yielding stocks--especially blue chips that you can count on to thrive long-term. High yield today is anything over 3%, a level that may indicate the stock has been unfairly trashed and will do well in coming quarters. Among the highest-yielding Dow stocks are Philip Morris (4.1%), J.P. Morgan (4.4%) and General Motors (3.5%). Other stocks to own might include those of consumer-products companies, a group that lost...
More conservative plays, but ones that still have an equity component, include convertible bond mutual funds, which hold high-yielding debt securities that can be turned into stock if the market rises far enough; or preferred stock, which carries secure, higher-than-normal yields and is relatively immune to stock market gyrations. If you really want to run for cover, a money-market account is the place. Long-term bonds can be a safe haven from stocks but carry their own risks. They represent a bet on stable or falling interest rates, a great hedge against recession...
...your tolerance for risk is higher, try one of the concentrated mutual funds that I assess in my column near the end of this magazine, in Personal Time. Or invest in the small stocks of the Russell 2000, preferably through an index fund or an actively managed small-stock fund. These small stocks have been beaten down more than their larger brethren, despite having comparable earnings...
...weren't prepared for last week's stock drop--you had too much money in stocks and now find that your new-car money is gone--don't despair. The worst is probably over. Still, you don't want to risk the grocery money too. You're way ahead if you've been in the market more than a year, so just sell down to your comfort level. But don't overdo it and try to time a further drop. You'll only end up selling at the bottom and cursing the market all the way back...